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⚠️ Backcharges Guide

Backcharges are a necessary tool when subcontractors don't meet their obligations. But handle them wrong and you'll face disputes, payment problems, and damaged relationships.

Key Principle

Document first, backcharge second. A backcharge without documentation is just a dispute waiting to happen.

What Is a Backcharge?​

A backcharge is a deduction from a subcontractor's payment for:

  • Work they should have done but didn't
  • Damage they caused
  • Costs you incurred due to their failure

Common Backcharge Situations​

  • Cleanup - Sub left debris, you cleaned it up
  • Damage repair - Sub damaged other work
  • Defective work - You had to fix their mistakes
  • Schedule delay - Their delay caused your costs
  • Safety violations - Fines or correction costs
  • Coordination failures - Rework due to their error

Before You Backcharge​

Check the Subcontract​

Your subcontract should address:

  • Right to backcharge
  • Notice requirements
  • Documentation requirements
  • Dispute resolution

Typical clause:

"Contractor may perform work that Subcontractor fails to perform and backcharge Subcontractor for all costs incurred, plus 15% overhead, upon 48 hours written notice."

Verify It's Valid​

Ask yourself:

  1. Is it clearly the sub's responsibility?
  2. Did you give required notice?
  3. Did you give them chance to correct?
  4. Is the amount reasonable?
  5. Can you document everything?

Consider the Relationship​

Before backcharging, consider:

  • Is this sub on future work?
  • Will they withhold cooperation?
  • Is the amount worth the conflict?
  • Could you negotiate instead?

The Backcharge Process​

Step 1: Document the Issue​

Immediately:

  • Take photos/video
  • Note date, time, location
  • Identify responsible sub
  • Describe the issue
  • Record who was present

Step 2: Send Written Notice​

Notice should include:

  • Description of the issue
  • Reference to subcontract clause
  • Their obligation that wasn't met
  • Your intended action
  • Deadline to respond/correct
  • Statement that you will backcharge

Sample notice:

TO: ABC Plumbing
DATE: January 15, 2024
RE: Notice of Deficient Work - 123 Main St Project

This is notice that your underground plumbing installation 
at the above project does not conform to contract 
requirements. Specifically:

- 4" waste line at grid B-3 has inadequate slope
- Missing cleanout at grid C-4 per specification

Per Section 12.3 of your subcontract, you are required 
to correct this work within 48 hours.

If not corrected by January 17, 2024 at 5:00 PM, we will 
proceed with corrections and backcharge all costs plus 
15% overhead per contract.

Please confirm receipt of this notice.

[Signature]

Step 3: Allow Time to Cure​

  • Give reasonable time to respond
  • Follow contract requirements (usually 48-72 hours)
  • Consider urgency of the issue
  • Document if they fail to respond/correct

Step 4: Perform the Work​

If they don't correct:

  • Document before/during/after
  • Track all costs (labor, material, equipment)
  • Use your own forces or another sub
  • Get invoices for third-party work
  • Add overhead per contract

Step 5: Calculate the Backcharge​

Include:

  • Direct labor cost (fully burdened)
  • Materials used
  • Equipment/tool costs
  • Third-party invoices
  • Overhead (if contract allows)
  • Any other related costs

Don't include:

  • Excessive padding
  • Unrelated costs
  • Punitive amounts

Step 6: Issue the Backcharge​

Backcharge notice should include:

  • Reference to original notice
  • Description of work performed
  • Detailed cost breakdown
  • Supporting documentation
  • Total amount to be deducted
  • Which pay application it applies to

Documentation Requirements​

What to Collect​

For every backcharge:

  • Photos of the issue (before)
  • Photos of correction (after)
  • Original notice letter
  • Proof of delivery/receipt
  • Sub's response (or lack thereof)
  • Labor records (who, hours, rate)
  • Material receipts
  • Equipment records
  • Third-party invoices
  • Overhead calculation

Photo Documentation​

Capture:

  • Wide shot showing location
  • Close-up of the issue
  • Any labels or markings
  • Date/time stamp
  • Completed correction

Labor Documentation​

WorkerDateHoursRateTotalDescription
J. Smith1/174$65$260Demo deficient pipe
J. Smith1/186$65$390Reinstall correct slope
Helper1/186$40$240Assist with reinstall

Backcharge Calculation Example​

Situation: Sub left excessive debris, you cleaned up

Calculation:

Labor:
  2 laborers × 4 hours × $45/hr = $360

Equipment:
  Skid steer rental - 4 hours @ $150/day = $75
  Dump truck - 1 load = $250

Disposal:
  Landfill fee = $125

Subtotal: $810
Overhead (15%): $122

TOTAL BACKCHARGE: $932

Common Backcharge Types​

Cleanup Backcharges​

Document:

  • Area that needed cleaning
  • Time spent cleaning
  • Equipment used
  • Disposal costs

Damage Backcharges​

Document:

  • What was damaged
  • Who caused it (witnesses)
  • Repair method
  • Repair costs
  • Any impact to others

Defective Work Backcharges​

Document:

  • What's defective
  • Specification/drawing reference
  • Notice to sub
  • Correction method
  • All correction costs

Delay Backcharges​

Document:

  • What was delayed
  • Impact on schedule
  • Direct costs incurred
  • Acceleration costs (if any)
  • Link to sub's failure

Handling Disputes​

If the Sub Disputes​

Listen to their argument:

  • Do they have a valid point?
  • Was notice proper?
  • Is documentation solid?
  • Are costs reasonable?

Options:

  • Negotiate reduction
  • Provide additional documentation
  • Mediate if significant
  • Hold payment and resolve later

When to Negotiate​

  • Relationship matters
  • Documentation is weak
  • Amount is small
  • Quick resolution preferred

When to Hold Firm​

  • Documentation is solid
  • Amount is significant
  • Pattern of problems
  • Contract is clear

Common Mistakes​

1. No Written Notice​

Problem: Verbal warnings don't count Solution: Always document in writing first

2. No Opportunity to Cure​

Problem: You fixed it without giving them chance Solution: Follow contract notice requirements

3. Excessive Charges​

Problem: Padding the backcharge Solution: Only charge actual, documented costs

4. Poor Documentation​

Problem: Can't prove the claim Solution: Photos, records, receipts for everything

5. No Contract Basis​

Problem: Contract doesn't allow backcharges Solution: Review subcontract before issuing

Preventing Backcharges​

As a GC​

  • Clear subcontract language
  • Pre-work coordination meetings
  • Regular inspections
  • Early communication of issues
  • Fair and consistent enforcement

As a Sub​

  • Understand your scope
  • Clean up daily
  • Protect your work
  • Respond to notices immediately
  • Fix problems before they escalate

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